IIF Global Macro Views: The Rate Shock Arrives One Bond at a Time

About this work

Marcello Estevão and Jonathan Fortun examine how a global rise in interest rates will feed through to emerging market finances. They find the effect arrives gradually, as maturing bonds are refinanced at higher rates and interest and principal payments take up much of the money raised in new issues. Bond markets stay open, with high yield sales and fund inflows signaling steady demand, and some governments can lean on domestic markets or delay borrowing. Borrowers carrying heavy external deficits and big foreign currency repayments have little room to wait, so reserves, repayment timing and reliable foreign currency inflows will decide who can adjust in time.